Green Tax

Public sector can promote Green Growth incentives throughout society. Green Growth could thus be implemented through revenue of so-called neutral green tax and budget reform (GTBR).

It is estimated that GTBR will be a useful and powerful tool to improve eco-efficiency of economic development since public policy must systematically use prices to drive markets in the desired direction (greater resource efficiency, reduced emissions, more dynamic innovation/new industries).

Moreover, GTBR is a very direct public policy to influence market prices and internalize the costs of environmental degradation. In many cases the key concept of GTBR, which is revenue neutrality, is overlooked. There is a need to further promote the concept of revenue neutrality so that governments, industries, public and all stakeholders consider green tax not as an additional tax but rather a shifting of the tax burden. When green tax and budget reform is revenue neutral it is not an additional tax, but rather a shift in the tax base from a tax on income or pension (a good) to pollution (a bad).

There is also a need to further promote the understanding that GTBR, when appropriately designed, brings a double dividend because it causes economic growth while simultaneously improving environmental sustainability. However, there are certain conditions necessary before governments can introduce GTBR. Industry and other stakeholders often object to GTBR because of misperceptions. These misperceptions include the belief that green taxes are additional taxes, that they will reduce industrial and/or international competitiveness and that they are income regressive (benefit the rich more than the poor). These misperceptions must be dispelled through increasing awareness of the successes related to revenue neutrality, improved industrial and international competitiveness and non redistribution of income that have resulted from green tax implementation in various countries.

Green tax may be used in combination with other tools (e.g. eco-labelling, public disclosure (see below), green accounting, legal instruments and many others) to improve the eco-efficiency of economic growth. To be really effective, the design and implementation of green taxes must be country specific. In Asia and Pacific green taxes are not new; many countries already have a tax on energy, water and other natural resources. However, environmental taxation must be improved to include revenue neutrality and the idea of shifting the tax base. Such changes in policy will benefit countries by improving their environmental quality and economic status.

The Green Tax and Budget Reform has been in the centre of the deliberations of the First Green Growth Policy Dialogue, November 2005. This could be followed in detail through the documents of the meeting <http://www.unescap.org/esd/environment/mced/singg/index.asp>

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